Interested in the value of the houses in your neighborhood?
For the past 5 years, I have had the privilege of working with a bankruptcy trustee. What does that mean? A bankruptcy trustee is assigned to someone who is going through bankruptcy. The trustee decides what happens to all of the person’s assets. This could include selling their house. It all depends on how much equity they have in their house, the house market value, and if the trustee can pay off the mortgage, and other circumstances.
The trustee gives me an address and I do research on the property. This usually includes getting preliminary title work. This shows all the liens on the property. I have not seen the interior of the house so I base my findings on the house being in marketable condition. In some cases, it is far from it. I tell the trustee what I think the house is worth on the market today. The trustee decides if he can sell the house and at least break even.
Recently, he gave me an address that I did research on. A 3 bedroom, 2 bath ranch in a very popular neighborhood. Houses were selling in a day or two after being listed and at premium prices. After doing my research, I came to the conclusion that it was likely to be worth between $175,000 and $190,000. If that were the case, there was a lot of equity in the house. The trustee told me to list it.
I do not list a house without seeing the insides. The last time I listed a house without seeing the insides, it turned out to be a meth house. I ended up having to lower the price by 50 percent.
I ended up talking to the owner’s attorney. The attorney gave me the phone number of the owner. He also informed me that the owner’s brother had the power of attorney over the owner and that the owner could be considered to be a hoarder but he had never seen the house.
I find that the definition of “hoarder” is very broad, based on who you ask. The definition I am familiar with is based on the TV show Hoarders which I have seen in several episodes. I have also been told houses were owned by hoarders but come to find out that they were just very cluttered.
I called and talked to the owner about getting in to see the house. The owner seemed very cooperative and we arranged a time when I could see the house. Shortly after that call, I get a call from the brother’s wife. She gave me a lot of information about the house. She said that she and the brother had started to empty the house. They filled two 30 yard dumpsters of stuff and then gave up.
At this point I did not know what to expect. Was this the next production set for the TV show Hoarders or was this just a cluttered house?
I met the brother and his wife at the house the day I was to tour. After introductions and some stories of their experience, we went inside the house and they introduced me to the owner.
I toured the house, took room measurements and pictures. It was very cluttered but I did not consider it a hoarder’s house. Of course, I never saw it before they pulled out 2 dumpsters worth of stuff.
I was told that the owner was only taking her clothes and personal effects out of the house and everything else would stay and convey to the buyers. That meant that the buyers would have to clear the house of any unwanted items. A huge job that might take weeks.
Other than the clutter, the 20-year-old house was in pretty good shape. A popular floor plan that would look much bigger when all the “stuff” was removed. The carpet could be cleaned or replaced and some paint touch-up was needed. My only other concern was that the back deck needed work. Other than that, from what I could see, little needed to be done. I knew that pricing it between $175,000 and $190,000 was out. I told the trustee that we needed to price it at $149,500. He agreed.
The owner said that she only wanted showings between the hours of 11:00 AM and 6:00 PM. Because of the limitations, I set it up for only 30-minute showings and no overlapping because of COVID. That meant that at max, only 14 showings a day. I thought that would work.
Two days later, after getting all the legal documents signed, I got it listed. I went to the house to put up a For Sale sign. As soon as I put up the sign, a neighbor came running out and took a picture of it. I guess he wanted the phone numbers. He never approached me.
Once I got back to the office and entered the listing, showing requests started pouring in. After a couple of hours, we had booked showings for the next 2 days and could not book any others until the third day. I started getting calls, emails, and texts from Realtors asking me why they could not get a showing immediately. After spending the rest of the day responding to all the communications, purchase agreements started pouring in.
On the first day, I got 29 offers. Some were from out of state. 78% were cash offers. (There must be a lot of cash out there) 80% of the offers were above list price. Some of the offers were sight unseen. (They had never seen the interior of the house first hand)
I had Realtors calling me after sending me an offer asking if they were the highest offer. If I said no, they would send me a higher offer. Turns out that the two highest bidders were battling it out.
Fortunately, the trustee picked an offer at the end of the first day. The first day pushed me to the max. After making the listing pending, I still got 2 more offers the next day for a total of 31.
Turns out that he picked a cash offer 12% above the list price. Nice!
I have always had two theories in this market about cash sales and pricing.
• It used to be that cash sales were king. You could close must faster. You did not have to wait for a lender to decide, generally no appraisals, and a lot of times no inspections. Sellers would always prefer cash sales even if they were a little lower than the list price. Now, cash sales don’t mean a thing unless they are higher than the list price.
The National Association of Realtors says that the average amount of offers per listing is 5. In this fast-paced market, you are bound to get lender offers above the list price. The housing inventory is so low that mortgage buyers are struggling to get a house. They will naturally bid above the list price to get the house and hope that it will appraise which leads me to my other theory.
• Pricing…Normally Realtors try their best to price a home at current market value. The seller will get mortgage offers above the list price and accept one. Now comes the appraisal. If it does not appraise for the offered price, then the buyer has to come up with the difference. This is called the appraisal gape. If the buyer does not have the difference in cash to meet the offered price, then they may lose the house unless the seller reduces the price of the house to match the appraisal. My theory is that if you price the house under market value, you will get offers over the list price and still have it appraise. You will also get more offers.
Real estate is a tricky business. Every sale is different with its own set of circumstances.
Summary of the sale:
• 24 out of 31 offers were cash offers
• 25 out of 31 offers were above list price, 2 at the list, and 4 below list
• 21 out of 31 offers were sight-unseen offers
• 6 buyers made multiple offers each higher than the last
• One Realtor made an offer
• Two buyers made 4 offers each. They were bidding against each other
• One offer from Texas, one from Delaware, one from California, and one from South Carolina
• 45 scheduled showings over 3 days
• Sold in one day – future scheduled showings were canceled
It is a crazy market out there!
In 2021 348 of the 1255 (28%) houses sold in Pike were cash transactions. That is equivalent to about 70 million dollars. There is a lot of cash out there.
14% of the houses sold were financed with FHA (Federal Housing Administration) insured loans. The benefit of an FHA loan is that there is a lower down payment of 3.5 percent and lower credit scores to get the loan. The challenge is that you have to have PMI (Private Mortgage Insurance). FHA mortgage insurance varies from 0.45% to 1.05% of the loan amount. This gets added to your monthly payment. This number has been steadily dropping since 2016 when there was almost 33 percent of the houses sold using FHA loans. Why? Conventional lenders are getting more competitive and reducing their downpayment percents.
2021 was a wild year in real estate. In my 20 years of real estate sales, I thought I had seen it all, but I was wrong. Here is my review of Pike real estate in 2021;
According to Lawrence Yun, Chief Economist at the National Association of Realtors, “For every listing there are 5.1 offers. Half of the homes are being sold above list price.”
It takes some real thought and desires to win in a bidding war. Knowing your options is key. There are many things that you can do to make your offer stand out.
1.) First realize that if you are getting a mortgage, the lender will only allow the loan amount to be up to the appraised amount. That means that if you offer more than the appraised amount, you will have to come up with the difference. If you have the extra cash, then this should not be a problem. If you don’t, then you could negotiate and see if the owner would take the appraised amount. Another solution would be to offer a price but then in the “Further Conditions” in the Purchase Agreement, write something like “if the home appraises under offer price, then the buyer will pay up to appraised amount”. This would eliminate any question as to what you would be willing to pay and eliminate negotiations after appraisal.
2.) Don’t request any appliances even if the seller is willing to leave them. This would show the seller that you are willing to buy the house without the appliances. The seller might like the fact that they could take some/all appliances with them.
3.) The earnest money was designed to show the seller how interested you were in buying the house. The bigger the earnest money, the more you want the house. It also shows that you are willing to put skin in the game. Larger amounts of earnest money could make a difference.
4.) How you finance the home and what your down payment is can be critical. Basically, there are 3 types of loans. FHA, insured conventional and conventional. If you have a down payment of less than 20 percent, then the lender will add a Private Mortgage Insurance policy to the loan. FHA appraisals are always a little more demanding. This could be a little more challenging for the seller if their home is not up to par. Bigger down payments do have one advantage when it comes to appraisals. Example: Buyer offers $200,000 on a house. They put down 10 percent as a down payment. Now house only has to appraise for $180,000 because that is all the loan would have to be. This could be a big concern for sellers if the house does not appraise. Having a bigger down payment could give the seller some relief.
5.) Don’t ask the seller for any closing costs. This might be the only way a buyer could afford the house but you are taking money out of the seller’s pocket.
6.) Work with the seller on a closing date. A buyer’s agent could call the listing agent and ask what would work best for the seller. The seller might need time to close on their next house or might want to close as soon as possible.
7.) Traditionally the closing fee (the fee charged to have the table closing by the title company) is split between the buyer and seller. The fee usually is around a total of $300 to $400. The seller will pay more attention and appreciate the offer if the buyer pays the sellers half of the fee.
8.) In this market, possession of the new property can make or break a deal. Traditionally, possession was always at closing. Now, giving the seller days, weeks, or a month to vacate the house has become more of the norm. This protects the seller from having to move out before closing. It is possible (and happens many times) that the buyer can’t get the loan but does not find out until a day or two before closing. Maybe the seller has bought a new house and has moved into it. Now the seller has to face two mortgages until they can find a new buyer for the old house. Giving the seller extra time to vacate is a huge plus.
9.) Either waving the right to have a home inspection, taking the property as-is, or using the “AS IS” ADDENDUM TO PURCHASE AGREEMENT is a benefit to the seller. This allows the buyer to have an inspection, terminate the transaction if any undisclosed defects were found in the inspection. The seller has no obligation whatsoever to correct the defects found in the inspection. This protects the seller from any inspection repair expense. Normally this would work well if the house is in good condition and has no defects and needs no repairs.
10.) Don’t ask the seller to pay for a home warranty for the buyer. This is an added expense for the seller. The buyer can order and pay for a home warranty any time after the closing for the same price.
11.) The buyer could pay for the seller’s title insurance policy. This cost could vary based on the price of the house. This could mean a lot to the seller.
12.) Because Indiana property taxes are paid in arrears, the bills you get this year in May and November pay for the first 6 months of last year and the last 6 months of last year. The seller owes the buyer a credit at closing based on what the last payment covered to the closing date. The title company prorates it and gives the buyer a credit and the seller a debit on the closing statement. Otherwise, the buyer would be paying the seller’s property taxes from their escrowed mortgage payments. The buyer could relinquish the credit or part of it which would save the seller some money. These tips are ways to influence the seller in a multiple offer situation. The whole idea is to reduce the seller’s costs and inconvenience. The more tips you can use the more likely you are to get the seller’s attention and maybe win the bidding war. When I represent the seller in a multiple offer situation, I start an Excel spreadsheet with all the variable contingencies. This makes it easier for the seller and me to decide which the best offers are. The last multiple offers I did this to had 9 offers. The one before that had 15 offers. It’s a seller’s market.
DISCLOSURE – You should be careful about waiving the inspection. As a licensed Real Estate Agent, we have a fiduciary responsibility to educate our buyers of the importance and benefits of an inspection. And, as a Realtor, the Code of Ethics states that we make sure that any known issues are still disclosed. There are benefits and liabilities to each of these above tips. Make sure you understand them before you use them.
This month I have had several run-ins with something called a “Quit Claim Deed”.
I have had a closing where the seller/investor was used to using a Quit Claim Deed for his house purchases. At the closing table, he could not understand why he was being charged $900 for property taxes. This is traditional in Indiana. You see, when you pay your property tax bill this year, you are paying property taxes for last year. The May payment for this year pays for the first 6 months of last year. The November payment this year pays for the last 6 months of last year. When you sell a house, the buyer takes over the property tax payments, but they are paying for last year when they did not own the property. To reconcile this at closing, the seller is debited, and the buyer is credited with the amount of property tax that the seller is responsible for. This makes the buyer whole and not out paying the seller’s property tax bill.
This seller was used to having one document at closing that gave the buyer’s and seller’s name, the amount, and the legal description. There was no consideration for property taxes. It means that because he used Quit Claim Deeds in the past, he ended up paying the seller’s property taxes for a year. The closer, the buyer, and I tried to explain this to him, and we failed. For the following week, he hounded the three of us for his money.
This week, a longtime client of mine asked me about a Quit Claim Deed that his sister used to buy a house years ago. He was unfamiliar with it and wanted to know the in and outs of it. So, I decided to put together the following chart and explain it to him.
All title company closings are insured. Unlike other insurance which protects you from issues in the future, title company insurance protects you from issues that occurred in the past.
The boxes on the left side of the picture show some of the things that the title company researches.
• Property tax records – title companies pro-rate taxes daily. This amount gets debited to the seller and credited to the buyer. Changing the closing date can change these amounts.
• Research of title – the process of retrieving documents evidencing events in the history of a piece of real property, to determine relevant interests in and regulations concerning that property.
• Liens – A check on all the recorded liens on a property. These would have to be cleared in advance or at closing.
• Clouds on title – A cloud on title or title defect is any irregularity in the chain of title of the property that would give a reasonable person pause before accepting a conveyance of title.
• Homeowner association – Make sure that all dues are paid and up to date and what the monthly or quarterly or yearly fees are.
• Lender – If the seller has a mortgage on the property, the title company must get a pay-off amount. This will be paid to the lender after the closing.
Here is the major difference between a General Warranty Deed (Traditionally used) closing and a Quitclaim Deed closing. In the picture, there is a dotted red line box. This red box is the only thing involved in a Quitclaim Deed closing along with one document that shows a cash amount, names of buyer and seller, and the legal description of the property. After the two parties sign, the document must be recorded.
Basically, it is an uninsured closing. There are no protections in a Quitclaim Deed. Here is what could happen after the fact.
• Maybe the seller did not own the property.
• Maybe the seller had partial ownership.
• Maybe there were past property taxes owed on the property.
• Maybe there was a cloud on the title.
• Maybe there was a contractor lien on the property.
• Maybe there was $1000’s owed to the homeowners association.
If the Quitclaim Deed was executed properly, the new owner is now responsible for the above issues.
Yes, it is a lot cheaper to do a Quitclaim Deed transaction if you are willing to roll the dice and take the risk.
A new homeowner wants peace of mind and is usually willing to pay for it.
Due to the 2020 COVID disruption, I thought it would be a slow year. I was wrong. It turned out to be a very good year for real estate. Sales were up about 7 percent over 2019. Inventory (houses for sale) was EXTREMELY low making prices go through the roof. (no pun intended) Today there are 17 houses for sale in Pike. That is a long way from over 1000 houses on the market ten years ago. The interesting variable is that there are a ton of buyers looking for homes. When good houses at fair prices go on the market, there is instant activity. Numerous showings, multiple offers, and quick sales.
Recently I listed a house in Pike, and I had 36 scheduled showings, 9 offers and the seller accepted an offer in 24 hours. One of the offers was $23,500 over the list price. During the first 24 hours, my texting and phone calls about the property were non-stop. Realtors wanted to know what it would take in an offer to get their buyer’s offer accepted. Half of the communications were asking me if I had any offers on the property yet. And no, the seller did not take the high offer. I find that not too many Realtors think about the appraisal when pricing a property. Lenders will only lend to the appraised amount. You may think that you are doing your seller a great service when getting a much higher price than the list price but, if it does not appraise the buyer and seller have one of three choices. Either the seller has to reduce his price to the appraisal amount, the seller could reduce his price by some amount and the buyer would have to come up with cash to get to the reduced amount, or the sale gets terminated. It is best when the listing Realtor can come up with a fair market value and the seller accepts it.
BLC (Broker Listing Cooperative)
MIBOR (Metropolitan Indianapolis Board of Realtors) has a database of houses for sale which in most states is called an MLS (Multi Listing System). MIBOR calls theirs BLC (Broker Listing Cooperative). When you become a member of MIBOR you get access to the BLC. To become a member of MIBOR, you must be licensed, and pay yearly membership fees. Technically, MLS’s were created so that real estate brokerages could share commission fees between listing and buyer agents. So, it means that just because a house is listed with another brokerage firm, your buyer’s agent can still sell it to you.
I ran across this with my neighbor. He was a real estate investor. I had shown him homes and he had made offers but they were never accepted. A condo in my neighborhood when up for sale and it was listed with a big-name brokerage. He went directly to the listing agent and bought it. After the fact, I asked him why he did not let me sell it to him. His answer was “It was not listed with your brokerage.” Needless to say, I was disappointed that he did not understand real estate protocols.
I got hooked up with a Department of Justice bankruptcy Trustee attorney about 4.5 years ago. He sends me property addresses and who to get in contact with to see the properties. Rarely do I meet the owner and the properties are mostly vacant. I tour the property and put together a report as to what I think the property is worth on the market today. He decides if he wants me to list it. Most of these properties have very little “wiggle room” to break even when sold. Most are short sales (another story, another time).
In bankruptcy, the Trustee’s job is to decide what to do with your house (if you own one). He makes all the decisions and signs all my legal documents. I treat him like the owner of the property.
I get calls all the time when I list a bankruptcy property. The Realtors want to know the procedure. It is like a traditional sale, only it must be approved by a bankruptcy judge. This will take about 30 days after we have a buyer and Trustee signed purchase agreement contract. Judge signing is pretty much routine.
Since there is very little “wiggle room” in bankruptcies, I have been known to have to discount my brokerage commission to get the sale done. Sometimes everyone involved in the transaction will discount their fees in order to close the deal. You may think that Realtors never have to do that. Well, you are wrong. Years ago, a listing agent and I bought a radon unit and had it installed in a house so we could close a deal. I have known several Realtors that have bought refrigerators in order to close a deal. One of my agents is having carpets cleaned in order to close a deal. Happens all the time.
Quick Claim Deeds
When you close at a title company and use and pay for their services, your transaction is insured. It may cost you several hundred dollars more, but it is worth the money. If the title company misses something in their research, they are liable. I had a sale once where the title company missed a homeowner’s dues fee of $2,500 that the seller owed. After some negotiations, the title company paid the missed fees. These fees could be property taxes, vendor liens, anything the has to do with the house. These items must be cleared before a house can sell.
Quick claim deeds are different. It allows you to sign one document, exchange money, have the deed recorded and you are done. If it sounds easy, it is BUT the aftereffects can be disastrous. There is no research done on the property. It may have unpaid liens, homeowner’s fees, etc. Since those are not cleared before the sale, the buyer is now liable.
Also, since property taxes are paid in arrears, (property taxes that you pay today are for last year) some adjustments must be made at closing. Since the seller owned the property last year, they should pay the property taxes for that time period. If no adjustment is made, the new owner will pay the property taxes for the last owner. Traditionally in an insured closing, the seller gives a property tax credit to the buyer.
Behind the scenes in real estate, there are many things that the average buyer and seller may not think about or even know about. I am a big proponent of real estate education. I find the more buyers and sellers know about the transaction the more they can make the right choices and the happier they will be.
Note: I am not an attorney, and this is not legal advice. I only speak from my experiences.
2020 has been a year that we most likely won’t forget. I compare it to looking both ways before crossing a street, and then when crossing getting hit by an airplane. It has been a year of many surprises in real estate. The biggest challenge this year has been the shortage of houses for sale. To give you an example, 10 years ago there were over 1000 houses for sale in Pike Township. Today there are about 60. Why?
* Interest rates are at historical lows. About 3 % currently. (See next)
* Refinancing a home that you bought 10 years ago and paid $150,000 for with a mortgage rate of 6 % if refinanced today could save you upwards of $250 a month in mortgage payments. An incentive to stay where you are.
* Average prices in Pike have gone from $123,000 (2010) to $206,000 (in the past 180 days). Homeowners are now treating their homes as investments.
* People of all generations are staying put because of economic uncertainty.
* Because of COVID and many having to work from their homes, owners are updating their abodes instead of selling, keeping Lowes and Home Depot in business.
* Buyers will pay a premium for a brand-new home. Unfortunately, production builders do not like to build starter homes. They can’t make any money. They prefer homes in the 300 to 400K range.
My experiences this year;
* Sold an average priced home in Crooked Creek Heights in 8 days with 23 showings and 5 offers.
* Sold a lower-priced condo for $5,000 over list price in 10 days.
* Sold an investor 4 condos in one sale. This is unusual. I just happened to know an investor buyer and an investor seller and put them together.
A key indicator that tells whether it is a buyer’s or seller’s market is the absorption rate. Basically, the rate at which available homes are sold in a specific market during a given time period. The absorption rate in Pike right now is about ½ of 1%. Anything under 6 is a seller’s market. Currently, sellers will dictate pricing and contingencies.
Starting this month I will be putting a page together showing what is happening in Pike Real Estate. It will always be for the month before. It will show highlights of sales prices, history, and an overall picture of the Pike market. The page can be found here
The New Normal
Back in March, I had started reading trade articles about how title companies were going to do closings. Normally, the closer, buyers, and sellers and their Realtors would all be in one room and sign all the documents. For social distancing reasons, title companies started offering options. You could still all close in one room, you could have buyers in one room and sellers in another or you could have a curbside closing. A curbside closing? This was new.
Never Get Out Of Your Car
I got to experience it this last week. Once you arrive at the title company, you stay in your car and call to tell them you are there. Once all parties are there, they bring all the documents to the buyer and seller for them to sign. Once signed they go get copies made and return with packets of documents for the buyer, seller, and their Realtors.
It seems that convenience, health, and safety are the new normal. It may be but I see virtual closings online coming soon. I read this morning “In a survey conducted by Solidifi, 81% of consumers reported they would still do a mortgage closing in-person versus digitally, but 70% of consumers also said they would like a more digital process when closing”. Mixed signals. It will be interesting to see those numbers a year from now.